May 18, 2011

Financial planners and other prudent financial “types” have long held a grudge against the 30-year mortgage, and with good reason. The (now) standard 30-year mortgage term has cost Americans, on the whole, unfathomable sums of money since they became, well, standard. Banks have historically loved the longer-term mortgages because they ultimately put far more money into their pockets, and financial advisors have despised them for that same, exact reason.

Now, the very survival of the 30-year mortgage mechanism is at risk, thanks to the economic upheaval that we’ve all come to know so well. Beyond the tightening of underwriting standards overall, Fannie Mae and Freddie Mac, the “government-sponsored entities” that have gone such a long way to fueling the American Dream of home ownership through their mission of implicitly guaranteeing mortgages and thus keeping them cheap and easier to obtain, are faced with the very real prospect of seeing themselves drastically reduced or even eliminated outright. Should that happen, the cost of the mortgages would likely rise, and jeopardizing the only real benefit that mortgage term offers: the lowest payment available, in general.

This is good news, truthfully. Although I believe the 30-year mortgage will remain among us in some form or fashion, as even without any government backing, the free market will keep it available for those who can pass the new, more stringent underwriting standards that will accompany it, the point is that it has always been a bad deal. It has led people to pay far, far more for their houses than they should, and demands that homeowners wait years to build up any real equity because of how slowly the loan amortizes.

Frustratingly, one of the reasons people have so quickly opted for 30-year mortgages is due to a simple lack of awareness of how the time value of money really affects a mortgage payment when the mortgage term is adjusted for varying lengths. A lot of people are aware that the longer the mortgage term, the lower the monthly payment, which is pretty obvious because the repayment period is spread over decades. So, right off the bat, “lower” always equals “better” for most people. The Part B to this, however, is that when people consider the possibility of a 15-year mortgage instead of a 30-year mortgage, they make the mistake of assuming that because the repayment period is cut in half, that must mean the payment doubles. It doesn’t. It is certainly higher, but it is not even close to being twice that of the 30-year payment.

Here’s a quick example. If you buy a $200,000 house with a 30-year mortgage at 5.5% fixed, the monthly payment (principal and interest) is $1,135. If you buy the same house with a 15-year fixed mortgage that’s priced at 4.5% (the interest rates on 15-year mortgages are often about a point less than those on 30-years), the monthly payment is $1,529. Higher, for sure, but nowhere near double that of $1,135. In fact, it’s about $400 per month more. In exchange for agreeing to a monthly payment of $1,529 instead of $1,135, the buyer could own the home outright in half the time, and pay a lot less for the privilege. How much less? The $200,000 home, financed for 30 years at the terms noted above, will ultimately cost a grand total of $408,000 when it’s all said and done. The same $200,000 home financed for 15 years at the terms noted will ultimately cost the buyer $275,000. So, for an unwillingness to find a way to come up with another $400 per month, the 30-year buyer…the “standard” buyer…will pay an additional $133,000 for the same house over what the 15-year buyer pays.

One of the silver linings of the recent economic collapse is that the population seems generally more aware about things like debt management, and how much debt costs in the long run. More generally, we’re all, it seems, getting a just a little smarter about money and how it works, and less tolerant of the way things have been done for years. This increasing consumerism is going to save us a lot of dough in the long run, and it’s high time that we look to applying this new outlook to the most expensive single purchase we will ever make. Refer back to the example I cited above. If you can pay $1100 a month for a house, then you can probably pay $1500; if you cannot, then it’s probably less a case that you absolutely cannot not, and more the case that you’ve decided to apply that additional $400 to something else. Now you have to ask yourself this question: Is whatever I’m spending that additional $400 a month on now something that’s worth me taking an additional 15 years to eliminate my mortgage altogether, and spending another $133,000 more than I have to?

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc.) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press).

May 03, 2011

Seemingly, in every neighborhood across America, there are empty homes. Empty. What’s more, many of these homes have been empty for years now. I’m not talking solely about fixer-uppers in rundown neighborhoods, but about perfectly nice homes in perfectly respectable neighborhoods, as well. In my neck o’ the woods, which is about the average size of a typical neighborhood, I count roughly 10 empty homes. Some are still at the point where there is an active sales effort ongoing…while the others are basically now “ghost” houses, with no signs of life or activity of any kind.

As you would expect from a housing market that has offered us so many empty houses from which to choose, the prices of these very available units are low, to the point of being sickeningly low if you happen to be the owner. Buyers are, in many cases, getting the deals of a lifetime on real property in the United States, and yet…the market is not moving upward in any noticeable fashion at all.

A recent article in The Boston Globe about the current state of home buying in America mentioned a property manager, of all things, who has decided to continue renting expressly because she has watched the value of the homes of her friends and acquaintances fall so far in the last few years. She is deciding not only against buying right now…she’s thinking she may never buy.

Really?

If you’ve decided to continue renting presently because you believe that the market will continue to fall into the foreseeable future, that’s one thing; that is a person who actually is paying attention to what’s going on, and has developed a strategy, of sorts, to secure the best deal possible when he ultimately buys. However, what’s disconcerting to financial professionals is to hear so many renters decide against buying real property entirely because of what has happened over the last few years

Count me as one financial pro who has always felt that home ownership is not the no-brainer that it is generally touted to be. There are a lot of examples of people who, for one reason or another, are better off remaining renters. Those people have always existed…the person who has little patience for maintenance is a good candidate for lifetime renting, as is the person who sees himself moving very regularly. However, if you are an otherwise good prospect for home ownership who is simply running and hiding because of what the market has done recently, that is a major mistake. Although I have never considered the purchase of a primary residence to be an investment, per se, it is still something that carries with it some investment-like features, and thus is open to be considered in terms of timing of purchase; right now, it’s a great time to purchase.

Methinks the aforementioned property manager will buy at some point in the future. You know when she’ll do it? After prices have already begun to rise, and after mortgage interest rates do the same thing. For many people, they quite unnecessarily set themselves up for future disappointments by waiting too late to take advantage of great deals staring them in the face. You don’t even have to trust your instincts in conditions like these – simply trust the facts.

Even taking into account the historic collapse in property values over the past few years, real estate has increased in value at a rate of a little over four percent per year over the past 20 years. That’s another thing – “historic.” What are the chances that another collapse of “historic” proportions will follow anytime soon?

In the end, it’s OK to pull over to the side of the road and wait for the storm to pass before continuing…but you also have to be willing to recognize when it has passed and when the sun is back out…or you’ll just remain forever at the side of that road.

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc.) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press).

April 20, 2011

There is a buzz throughout the economy now about how unemployment rates, which have been sitting at uncomfortably high levels throughout the country for so long now, are finally beginning to noticeably subside. Indeed, by any measuring stick, it’s fair to say that, even accounting for a certain amount of government “spin,” there is a real increase in employment for the first time in years. That’s good news, to be sure, but there is some not-so-good news that accompanies it, and it’s something to which we should pay every bit as close attention as we do the raw employment levels themselves. As it turns out, wages for the returning jobs are not what they were before those jobs initially went on hiatus, and there is reason to believe that wage levels will stay depressed.

I’ve written before about how the rapid evolution of technology has hurt the return to employment. It’s easy to understand why: as technology evolves and allows for the elimination or consolidation of workplace tasks, the people who were once needed to perform those tasks are themselves needed no longer. The latest casualty of this evolution is the next most-logical: wages. The rapid pace at which technology has come to allow employers to more easily consolidate jobs is also affording them the ability to pay less for the jobs that are returning.

What is happening in many cases is that the jobs that are returning are not the exact same jobs they once were. While companies were learning to get by with fewer employees, they had to get better at making those they had more efficient – in other words, they took advantage of technology to increase the productivity of each person. A mid-level manager who survived all of the upheaval and kept his job may now have multiple skill sets that span from the more traditional, to things like Internet search engine optimization, which can aid his company in garnering a premium presence on the Internet. For those workers returning who possess only older, more limited skill sets, that same company may have a need for them once again, but also may not have to pay the premium they once did.

The National Employment Law Project (www.nelp.org) recently completed a study that confirmed, like so many that have come before it, that the jobs that are being added are lower-paying. Now, there are reasons for that which nothing to do with technology, per se; for example, some companies, in a recovery climate, prefer to lessen their commitments to payroll and people by adding jobs that are admittedly lower on the food chain while they are still convincing themselves that better days are here to stay. However, make no mistake about it…technological evolution is a factor, as well, in that the ability to get by with lower-paid workers exists precisely because the better-paid workers are those that have become more high-functioning in the realm of the computer, in general, and the Internet, more specifically.

If you don’t have any experience with the numerous Microsoft business-oriented programs that are omnipresent in the workplace, you would do well to get very familiar with them, even to the point of gaining a certification or two that formally declares your expertise. Beyond that, Internet-based platforms and technologies are things that more and more companies want to see that their employees have well in-hand, so becoming versed in search engine optimization and other areas of Internet marketing expertise is a good idea, as well. The days of technologies like these existing merely as novelties have long passed, and are disappearing in the rear-view mirror at frightening speed. The middle-aged professional who was once thought of as sort of “cute” because he’s unable to send an email is now regarded as an irritation at the office, as an impediment to work being done quickly and efficiently. Most importantly, the ability to work well in the technologically-driven workplace will make the difference in not simply whether there’s a job for you in the recovery, but if the job that’s available can actually pay you a competitive wage.

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc.) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press).

April 05, 2011

In the state of Massachusetts, there’s an investigation being mounted by the Secretary of State, William Galvin, into a securities broker who works in the investment division of Bank of America. Apparently, this fellow was the broker that met with some Bank of America clients, a married couple in their 60’s, who were seeking a superior return to that which they were receiving in standard bank vehicles like CDs. After investing a lot of money in the stock market with Bank of America in 2007, the husband committed suicide in 2009 on the heels of account losses in the neighborhood of $400,000 that resulted from the economic collapse we now all know too well. The family is alleging the usual things that are alleged when people who lose money in the stock market file complaints and sue brokers: that the broker misled, acted inappropriately, and was generally a bad guy when he helped the clients to place their market investments. Obviously, it is the actual suicide of the client, alleged to have been caused by despair over the losses, that makes this such a standout case over others that might be similar in nature but which are minus the drama.

So far, we know of no evidence that the broker was at all dishonest, thieving, underhanded, or anything else along those lines. Information to that effect may come out at some point, but it’s interesting to note that we’ve not seen any as yet. What we do know him to be is a guy who sells investments…perfectly legal investments, for a very mainstream financial institution. Could it be that doing such a benign sort of thing has the potential to become tantamount to murder in the nanny-state America of 2011?

Perhaps this warning will be dispensed to newly-licensed investment professionals: “Be careful whom you retain as a client; if you sell someone a mutual fund and it goes down in value, and he goes off the deep end, kills himself, massacres a family of six, or does something else similarly horrible, it will be your responsibility, Mr. Broker, and we will get you.”

While no reasonable person should be anything less than mortally offended at fraud-minded investment professionals, mortgage companies that falsify documents to the pronounced detriment of loan customers, and other like misdeeds in the financial services industries, there is no evidence that any sort of behavior even approaching the aforementioned was engaged in by the broker or Bank of America. Throwing out bathwater is what we should be doing…but I think we’re still supposed to hold on to the babies.

Let’s be clear on this bit of “inside baseball:” stock market losses, in general, remain “paper” losses as long as you do not actually sell and thus lock them in. If you, as an investor, decided to go ahead and sell your investments at their lowest point, rather than hang on for the rebound…because you were personally convinced that there was not going to be any rebound…how much blame should the person who initially sold you those investments shoulder in that? The simple truth is that there are plenty of people who, in a panic, decided to sell when the S&P 500 was at 676, its lowest point in the previous 13 years, while there are also plenty of others who decided to hang on through the turbulence and stay the course. The first group lost a bundle; the second group, with an S&P 500 now back up to over 1300 at this writing, is down about 15% from the market’s all-time high, and the way things are going, will likely be up from there in the not-too-distant future. Both groups went through the same market upheaval, but are separated by a singular decision to either remain invested…or not.

At the root of this remains the notion of the implied guarantee; that everything, all of the time, should be guaranteed by someone or something, and if that guarantee fails an inch, then the someone or something guarantor should be fined, prosecuted, thrown in jail, etc. The customer’s suicide is a tragedy, to be sure, but as long as there was full disclosure to the customers as to the nature of what they were buying when they made their investments, there is no fault to be borne by the broker or his employer for the subsequent performance of those securities. People who choose to live in America are those who choose to live in a society that is predicated on personal freedom, with all of the rewards…and risks…that are natural components of that freedom – that is how it has always been, and that is how it should remain.

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc.) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press).

March 09, 2011

For some time now, the advent of the Internet and the growing popularity of so-called “big-box” retailers have conspired to make life very difficult on some specialty stores that we’ve come to know and love for decades. Although consumers will always say that customer service is a significant priority when it’s time to decide where and how to shop, there is no question that price remains the chief consideration, and on that basis, the traditional bricks-and-mortar specialty retail store chains are at a significant disadvantage. Despite the demise of its chief competitor, Circuit City, Best Buy has been struggling greatly these days; since Circuit City went belly-up, Best Buy has been losing market share, and its stock price has declined over 20% since December…a period during which the overall equities markets have been up over 8%. Beyond the troubles facing the consumer electronics retailers, bookstore Barnes and Noble is trying to reinvent itself at a time when (former) competitor Borders is in bankruptcy and shuttering a huge number of its locations, and shopping malls, once the answer to everyone’s question about where to go to shop because of their composition of nothing but specialty stores, remain painfully empty in many locations through the U.S. All of this activity, or lack thereof, beckons the question…is the death of the traditional specialty retail store inevitable?

In short, yes. While not every specialty retailer based in physical locations may go under at some point, the heavy influence on consumer behavior wrought by both the Internet as well as the giant discount retailers has made the prospects of their continued survival suspect.

In Best Buy’s case, the acute irony is that the very technology that the company sells is the mechanism that people are using to help kill it and other specialty retailers. The symbiosis between the overall increase in “consumerism” and access to information as consumers…and the ease with which that information can be obtained and processed, courtesy of technology…is undeniable.

Bookstores, to cite another example, have famously become the victims of this seismic shift, as well; the Internet has brought us Amazon.com as the cheapest place to find new books, and has also brought us the ability to read books without having to buy an actual book at all.

I wrote a piece when Circuit City went under that declared that the overriding reason for the company’s demise was that we were fast becoming a society that had little use for specialty retailers. The troubles facing Best Buy are more testimony to that end. When Circuit City went under, the feeling in some quarters was the Best Buy had “won,” but those who believed that didn’t see the real competition; the real competition for all of the largest specialty retailers is not each other, but rather, the non-specialty and/or Internet-centered retailers who will always be able to win out on price.

Is Best Buy done for? More generally, are specialty retailers permanently headed the way of the wind? Only time will tell, but when the evolution of Internet-only and big-box retailers, both separately and together, becomes so impactful that the leading specialty stores find themselves fighting for their very lives, their long-term prognosis is anything but good.

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc.) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press).

February 22, 2011

Anyone who knows me, or has followed my writing for very long, knows that I don’t believe in retirement. I think that the evidence of our great value as productive humans is so obvious in so many ways that said productivity should be viewed by each of us as the lifeblood to our very survival in the same way and to the same degree that actual blood is important to us all. We were not blessed with remarkable brains and remarkable bodies just so that we could simply check out on using both out of deference to reaching a certain age.

A paper published not long ago by two economists, Dr. Robert Willis and Dr. Susann Rohwedder, directly makes the case that the early one retires, the more quickly memories will decline. In short, the paper, entitled Mental Retirement, makes a compelling case that there exists a direct, highly-correlated relationship between somewhat-seasoned folks (the subject age group analyzed was 60 to 64) and their performance on memory tests, based on whether or not they are still working; in summary, those who were still working did better as a group in comparison to those who were not.

The oft-cited suggestion of keeping one’s mind busy in retirement with mental puzzles and the reading of more books, well-meaning though it is, apparently isn’t cutting it. As Dr. Lisa Berkman of Harvard’s Center for Population and Development Studies has said, “If you do crossword puzzles, you get better at crossword puzzles; if you do Sudoku, you get better at Sudoku. You get better at one narrow task. But you don’t get better at cognitive behavior in life.”

In other words, there are no short shortcuts to mental well-being and longevity, just as there are no shortcuts to physical well-being and longevity. It takes work…and apparently more of the sort that actually pays a salary.

Interestingly, Drs. Willis and Rohwedder go on to make the point, based on their evidence, that countries (this was a multinational study) that have laws and other incentives which essentially encourage their citizens to retire at younger ages may have the biggest problems associated with the viability of memory on behalf of their populations. Given the current financial difficulties so many of these countries are experiencing precisely because of entitlements, it appears that these incentives may be doing more than just economic harm to the broad population.

I’ve always talked about the distinct financial advantage associated with avoiding the cessation of work until you absolutely have to; it should be obvious, but let me state it again: Continuing to set money aside, in combination with continuing to generate a separate, organic income for as long as you are able, will always, by definition, put you in the strongest possible financial position when it comes time to actually need the money in order to live and/or pay for medical expenses (and will also allow you to take some pretty great vacations along the way). Now, we’re finding more and more evidence to support the idea that the very act of perpetuating a professional work life, beyond the direct financial benefits, may well be the key to delaying the end-stage of life altogether.

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc; www.investorspassport.com) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press; www.mikereevesonline.com).

January 31, 2011

Because we’re still fresh into 2011, the financial advice about how to make this your best year yet is still pouring in. As is always the case, much of the "wisdom" is predicated on the idea that the way to shore up financial stability is by cutting expenses. Just the other day, I read a fresh article in a well-known online financial publication that essentially stated that the key to success lies in doing things like bringing your lunch to work instead of eating out, cutting your own lawn instead of using a service, buying generic products instead of name brands, and making other similar kinds of efforts.

Unfortunately, for those who have a real and significant cash flow problem, either they have already done those things and are still struggling, or making those sorts of changes will not be impactful at the level they require in order to get on the right track. One of the problems with focusing so much on cutting expenses as a means to financial viability is that there is only so much you can realistically cut. The family of four earning $40,000 per year is already, it’s safe to assume, living without much by way of luxuries, so how much more can a family like that really do without and still survive?

Another problem with cutting back is that it’s generally unpleasant. Even if you steeled yourself to making do with next to nothing, the result is a chronically distasteful lifestyle that makes the sound of the morning alarm little more than the starting gun to a depressing day. I’m not talking about for the person who may be eating out five nights a week and is now facing the “painful” prospect of eating out only two; I’m talking about for the person who has already made eating out entirely a thing of the past, never takes any sort of vacation, no longer even goes to the movies, and for whom cutting back further might mean eliminating basic cable TV, dumping some forms of insurance coverage, or actually modifying diets so that less food needs to be purchased at the grocery store.

Frustratingly, family financial planning and budgeting seem to focus way too much on the idea of living within your current means, and far too little on increasing family inflow. Of course a family should cut where they can if they are struggling, and of course people should live not only within, but well within their means, but how about paying some real attention to increasing those means? The good news to that end is that in this day and age where people with a phone and a computer can fashion professional offices from a spare bedroom, there is more and more legitimate opportunity to actually work another job right from home, thereby lessening the strain on family relations that working multiple jobs invariably produces. One great opportunity there is in the area of Internet marketing, and some tools to be successful at that can be found at Christian Internet Income (www.christianinternetincome.com).

In the end, the efforts at increasing your income by working more at your present job or taking a second (or even third) job will surely compromise your available recreational time, but when you do have some, you’ll actually have the ability to enjoy it. By attacking cash flow problems solely by cutting expenses will mean that while you might have more time, there’s nothing you can afford to do with it except sit in one place with the lights out…and what kind of life is that?

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc; www.investorspassport.com) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press; www.mikereevesonline.com).

January 17, 2011

Bankrate, Inc. (www.bankrate.com) blogger Jennie Phipps recently told us about a pretty neat guy named Leonard McCracken. Mr. McCracken is 107 years old, but it’s not merely his long life, impressive though it is, that makes him a worthwhile subject for an article. Turns out that not only is Leonard McCracken well over 100, he’s been retired since he turned 65; that was back in 1969. Again, not bad at all, but that’s not the really outstanding part. The outstanding part is that Leonard McCracken, 107 years old, retired for the last 41 years, and a man who never made more than $10,000 per year when he was a working man, has subsisted during all of his retirement years on a combination of savings, Social Security, and an annuity he purchased many, many moons ago.

Once again, we have another story about someone who was raised in a different time, with different values, with different notions about spending and saving from what more recent generations have harbored, who is able to survive just fine as a retired person for several decades after he hung up his work clothes once and for all.

The overriding theme in these tales is always the same: live within your means…but not merely within your means - you have to be willing to live so far beneath them that it often hurts. McCracken cites a lifelong devotion to thrift stores and second-hand everything as a big part of why he has been able to pull off his feat, but we also see that investing is a big part of the formula for success, as well. When you live well below your means, you will have positive cash flow, and when you have positive cash flow, the smart thing to do is to put it into asset classes that have a demonstrated record of growing over the long term.

McCracken has also touted avoidance of the stock market as a big part of his success (his investment of choice has principally been real estate), and while I don’t wholly agree with everything he suggests, including that, I don’t allow the differences to shift my focus away from the larger, very-valuable message: Work hard, save like crazy, and live in a way that allows you to save a large portion of what you earn to have available later when you can no longer work. We’ve heard the message before, but given that some consumers are starting to re-adopt some of their pre-economic collapse spending habits, it’s probably a message we cannot hear too often.

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc; www.investorspassport.com) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press; www.mikereevesonline.com).

January 03, 2011

When others learn that I maintain a bit of an “alter ego” existence as a fitness trainer, many will waste no time asking about the best way to lose weight; when I immediately shoot back with “By sticking to a good diet and exercising regularly,” that response is often greeted with a dismissive look. In fact, I now deliver that line with sort of a smirk, anticipating the eye-rolling I’ll get in return. Tried and true ways of doing things are not exciting, and people are too often looking for something that’s clever – they want the “secret.”

Just as there is no trick to weight loss, there is no trick to growing your net worth. It is a matter of spending less than you make, and using that difference to both pay down any existing debts you have, as well as investing in assets that have a real chance to appreciate, like securities, real estate, small businesses, and the like. The good news part of that is that life can remain simple as you pursue your financial goals; the bad news is that, alas, you have to face up to the realization that there is no trick, no magic bullet…and no complex component to which you can affix blame if you fail.

Despite all of the stock market’s more-recent painful gyrations, the benchmark S&P 500 has recovered, at this writing, to a point where it’s about 20 percent below its all-time high reached in 2007. 20 percent down from that time is not an insignificant level of devaluation, but it’s hardly indicative of the stock market collapse toward which many were convinced we were headed just a couple of years ago. What does the current state of affairs tell you? In part, it tells you that if you maintain a diversified portfolio of mutual funds in an IRA, 401(k), or some other long-term retirement account, and you add to it regularly, that doing so is still a pretty good idea. Same thing with paying down debt; apply a sum each month to a targeted obligation that you can whittle away systematically. It’s not clever, it’s not sexy; it’s just effective.

I’ve heard it said that when someone gripes that “things are complicated,” the truth is that this person is unwilling to see “things” as simply and as clearly as they can be seen. I’m convinced that many of us actually like it when “things” are complicated, because it makes it easier to contrive excuses when we fail. People are free to play whatever mind games they want on themselves, but you cannot escape reality, and the reality is that countless numbers of people continue to achieve financial stability and independence doing nothing more than the simple things that have always worked over the long term.

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc; www.investorspassport.com) and the unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press; www.mikereevesonline.com).

December 19, 2010

I’ve never liked the so-called standard guidelines when it comes to the amount of money that is dictated as OK to spend each month on housing. According to the “experts,” it is perfectly fine to spend up to about one-third of your gross monthly income on monthly housing expenses, defined as the total of your principal, interest, taxes, and insurance. I guess the escape hatch for the experts is the use of the words “up to;” that way, they can guiltlessly defend quoting the too-high figure of 30 percent or so (the precise limit will vary depending on whom you ask, but, again, it’s always around one-third of gross monthly income).

According to the popular website Bankrate.com (www.bankrate.com), the upper limit should sit at 28 percent, which is actually a few percentage points lower than that quoted elsewhere. Still…28 percent is still way too high, folks. Think about it in practical terms. Let’s say, between you and your spouse, your gross annual income is about $70,000. Dividing that figure by twelve, we come up with a gross monthly income figure of about $5800; $5800 to cover everything…housing, cars, food…everything. According to the “rules,” you should still be OK if you allocate $1600 of that figure each month to your housing expenses (again, defined as principal, interest, taxes, and insurance).

Sorry…but that’s too much.

I remember when I bought my first house as a much-younger man, I ended up with a payment that represented about 17 percent of my gross monthly income at the time…and you want to know something? I didn’t have a good night’s sleep for the following two weeks, so worried was I about having to meet that obligation each month. I eventually began to relax about it, and I saw that it was manageable, but I will also tell you that there were plenty of months of unexpected expenses that, if I’d had an appreciably higher payment to deal with, there’s no way I would have been able to make it….and 17 percent is a lot lower than 28 percent.

The good news for home buyers these days is that the market is so hopelessly glutted with distressed properties that there is plenty of opportunity to buy one with a payment that is much lower than one-third of gross monthly income. To do that, however, means having to resist the temptation for more, and be happy with less; to look at a house as a four walls and a roof that becomes a home not out of deference to its size, but out of deference to the people who occupy it.

Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the recently-released book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc; www.investorspassport.com) and the new unarmed combat training DVD Thunderstrikes - How to Develop One Shot, One Kill Striking Power (Paladin Press; www.mikereevesonline.com).